Skip to content

Mortgage Market in Review – December 26, 2017

   

Market Comment

Mortgage bond prices finished the week lower which put significant upward pressure on rates. The NAHB housing index was 74 versus the expected 70 reading. The stronger than expected data resulted in stock gains Monday morning. November housing starts also showed strength. Q3 GDP rose 3.2% versus the expected 3.3% reading. Weekly jobless claims were 245K versus the expected 230K. The Philadelphia Fed business conditions index was 26.2 versus the expected 21 mark. Tame inflation readings Friday morning tempered the MBS selling pressure. Core PCE Inflation, the Fed’s preferred inflation gauge, rose 0.1% as expected. Durable goods rose 1.3% versus the expected 2.8% increase. Personal income rose 0.4% as expected. Outlays rose 0.4% versus the expected 0.3% increase. New home sales were 733K. Analysts expected a reading of 652K. We ended the week worse by approximately 1/2 to 5/8 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
2-year Treasury Note Auction Tuesday, Dec. 26,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Consumer Confidence Wednesday, Dec. 27,
10:00 am, et
129 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
5-year Treasury Note Auction Wednesday, Dec. 27,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Dec. 28,
8:30 am, et
240K Important. An indication of employment. Higher claims may result in lower rates.
7-year Treasury Note Auction Thursday, Dec. 28,
1:15 pm, et
None Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Disparity

The 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBS) differ significantly. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Information related to Treasury bonds is relatively easy to come by. Almost every major news medium reports changes. On the other hand, accurate mortgage interest rate information is difficult and costly to obtain.

In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful in that the bond market generally trends in the same direction. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBS only see minor price changes and vice versa. Last Thursday mortgage-backed securities fell 4/32nds at 10 am ET pricing while the 10-year Treasury rose 2/32nds and the 30-year Treasury rose 12/32nds at that time. This is a prime example where anyone that looked solely at Treasuries thought the mortgage market improved when in reality it got worse. The data provides a valuable lesson into the differences between treasury bonds and mortgage-backed securities. This is an example of why looking solely at treasuries can sometimes mislead people. Keying in on the correct information can mean the difference between saving and losing a tremendous amount of money when making float and lock decisions.


Copyright 2017. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.